The Lighthouse In Economics

Lynne Kiesling

Over at the Adam Smith Institute blog Eamonn Butler had a post on the Royal National Lifeboat Institution, a famous example that has been used first to illustrate and then to debunk the traditional argument in favor of centralized provision of so-called public goods:

There was a time, a century ago, when the RNLI found that cash was tight and chose to take government money instead. It found that for every 1 of government money it took, it lost 1 and 10 shillings in private subscriptions. Luckily it pulled itself out of that mire and is now firm in its reliance only on voluntary giving.

Aaaah, crowding out … To read the seminal article on why lighthouses are not pure public goods in the static neoclassical sense, see Ronald Coase, “The Lighthouse in Economics,” Journal of law and Economics 17 no.2 Oct 1974. It is also conveniently reprinted in The Firm, the Market, and the Law.